We recently moved our AUD forecasts lower, to accommodate the softening domestic economy and the lower RBA interest rate profile. We now expect AUD/USD to end 2013 at 0.86 from 0.88, and mid-2014 at 0.83 from 0.85.
From the early August lows of 0.8848, the AUD/USD has recovered to a near-term range of 0.9058 to 0.92. The combination of a market which is already very short the AUD, a Northern Hemisphere Summer induced low liquidity and market indecision regarding the US’s tapering of its QE policy, has generated this trading range, and near term AUD outperformance. The improvement in commodity prices and reduction in market volatility has seen our measure of AUD present value rise to 0.94, leaving the AUD/USD undervalued. However, with yield differentials expected to move in the USD’s favour, volatility rise and commodity prices weaken, we remain comfortable with a lower AUD outlook.
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